Exam 33: Partnerships and S Corporations

Sandy and Larry each have a 50% interest in SL Partnership.The partnership and the individuals file on a calendar-year basis.In 2018,SL Partnership had a $30,000 ordinary loss.Sandy's adjusted basis in her partnership interest on January 1,2018,was $12,000.In 2019,SL Partnership had ordinary income of $20,000.Assuming there were no other adjustments to Sandy's basis in the partnership,what amount of partnership income (loss)would Sandy show on her 2018 and 2019 individual income tax returns?

New business owners expecting losses in the early years will generally prefer the partnership (or LLC)form of business over the C and S corporation forms.

Voluntary revocation of an S corporation election is permitted only if consent is obtained from all shareholders.

A shareholder's basis for the S corporation stock is adjusted for ordinary income or loss and separately stated items that flow through to the shareholders as well as for additional capital contributions by shareholders and distributions to shareholders.

Richard has a 50% interest in a partnership,and he materially participates in the partnership's business.Richard's adjusted basis in the partnership was $60,000 at the beginning of the year,including his share of partnership liabilities.There were no distributions to Richard during the year.During the current year,the partnership borrowed $160,000 from a local bank to purchase equipment needed in the business.All of the partners are personally liable for all partnership debts.The partnership incurred a $320,000 loss this year.What amount can Richard claim as a loss from the partnership on his individual tax return this year?

As a corporation,the S corporation can elect a fiscal year of its choosing.

An S corporation distributes land with a basis of $60,000 and a FMV of $90,000 to its shareholder.The tax results of the distribution will be

The corporate built-in gains tax does not apply to a corporation that has always been taxed as an S corporation.

Joey and Bob each have a 50% interest in a Partnership.Both Joey and the partnership file returns on a calendar-year basis.Partnership Q had a $12,000 loss in 2018.Joey's adjusted basis in his partnership interest on January 1,2018,was $5,000.In 2019,the partnership had a profit of $10,000.Assuming there were no other adjustments to Joey's basis in the partnership,what amount of partnership income (loss)should Joey show on his 2018 and 2019 individual income tax returns?

The excess business loss limitations apply at the partner,not partnership,level.

All of the following statements are true with regard to the formation of a partnership except

Hunter contributes property having a $75,000 FMV and a $65,000 adjusted basis which is subject to a $36,000 mortgage in exchange for a one-fourth interest in the ABC Partnership.The partnership owes no other debts,but does assume this mortgage.Profits and losses are shared equally and each partner has a one-fourth interest in partnership capital.Hunter's basis in the partnership is

A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.

If a partner contributes inventory to the partnership in exchange for a partnership interest,the holding period for the partnership interest begins on the date the inventory was acquired by the transferor partner.

Because a partnership is a pass-through entity rather than a taxable entity,partnerships need not file tax returns.

On July 1,Joseph,a 10% owner,sells his interest in ABC Partnership to Andy,an outsider,for $165,000 cash and the release from $20,000 of partnership liabilities.Joseph's partnership interest at the beginning of the year was $120,000.The partnership earned income through June 30 of $100,000.Joseph's share of partnership liabilities increased by $5,000 from January 1 to June 30.What are the tax consequences to Joseph on the sale of his partnership interest (assume the partnership does not hold any inventory or unrealized receivables)?

Kuda exchanges property with a FMV of $630,000 and an adjusted basis of $450,000 in exchange for a one-third interest in a partnership.The property is subject to a mortgage with a principal balance of $300,000 which the partnership assumes.As a result of Kuda joining the partnership,Alejandro,a pre-existing partner,now has a one-third interest in the partnership.Alejandro will adjust his basis to

Guaranteed payments are not deductible by the partnership in arriving at partnership ordinary income but are included in the receiving partner's income.

A shareholder's deduction for ordinary losses and separately stated items cannot exceed his basis for the S corporation stock plus the debt basis for the shareholder loans made to the corporation and corporate-level liabilities personally guaranteed by the shareholder.

On January 1 of this year (assume not a leap year),Anne bought 50% of a calendar-year S corporation.Anne purchased the remaining 50% on July 1 (day 181 of the year).Anne's adjusted basis in the stock is $277,000 before any basis adjustments are taken into account.For this year,the corporation had a net operating loss of $365,000.What is the amount of the corporation's loss that Anne can deduct on her current individual income tax return?